Chinese banks increase overseas loan activity
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Foster's Group Ltd, Australia's biggest brewer, never borrowed from China until this year, when Bank of China helped arrange $500 million in loans to refinance debt.
Chinese lenders are "injecting large amounts of liquidity", said Peter Kopanidis, group treasurer at Melbourne-based Foster's.
The combination of the world's fastest-growing economy and "a very different deposit base" is helping Bank of China "contribute more at a time when some banks may be capital-constrained", he said.
Industrial & Commercial Bank of China (ICBC) and Bank of China underwrote $25.6 billion of syndicated loans in the Asia-Pacific region outside Japan this year, or 14.5 percent of the total, up from 4.9 percent a year earlier, data compiled by Bloomberg show.
They're providing capital as Western banks from New York-based Citigroup Inc to Royal Bank of Scotland Group Plc in Edinburgh retrench after global financial institutions took $1.7 trillion of write-downs and losses since the start of 2007.
China's banks boosted overseas syndicated loans to $4.9 billion in the first 10 months of this year, up from $3 billion in the same period of 2008. In fact, their growth in the market is the biggest of any nation, Bloomberg data showed. Meanwhile, the US and European banks' Asia-Pacific share slumped to 14.3 percent, down from 30 percent in 2008.
Lending encouraged
In the United States, about $111 billion of leveraged loans, or those made to speculative grade borrowers, have been made in 2009, down from $804.9 billion in the comparable period of 2007.
The State Administration of Foreign Exchange in Beijing is encouraging lenders to make yuan-denominated loans overseas to reduce exposure to consumers amid concerns that too much cash may cause the nation's stock and real estate markets to overheat.
The Shanghai Composite Index of stocks has climbed about 82 percent this year, compared with 21 percent for the Standard & Poor's 500 Index.
The Banking Regulatory Commission told city banks last month to avoid the "blind" pursuit of size after domestic lending surged to a record 8.9 trillion yuan in the first 10 months of 2009, up from 3.7 trillion in the same period a year earlier.
China may need to rein in credit growth to stem inflationary pressures and reduce banks' risks of future bad loans, the Paris-based Organization for Economic Cooperation and Development stated in a recent report.
"We are seeing signs of potential asset bubbles" in Asia, said Ronald Arculli, chairman of Hong Kong Exchanges & Clearing Ltd.
'Over-allocated'
Offering credit to companies outside China is also a way for the nation to invest its $2.27 trillion of reserves without buying treasuries.
China's holdings of US government debt swelled to $798.9 billion in September, up from less than $100 billion in 2002, according to the US Treasury Department.
China, the biggest lender to the United States, is "shouldering its responsibilities" to restore stable global growth, Premier Wen Jiabao said on Nov 12.
"Chinese banks have an incentive to lend offshore," said Viktor Hjort, a Hong Kong-based credit strategist for Morgan Stanley, an adviser on global takeovers. "China is sitting on large dollar reserves over-allocated to US Treasuries that it wants to reduce."
Seven Chinese banks made syndicated loans abroad in the first 10 months of this year, compared with three in the same period of 2008, Bloomberg data showed.
A syndicated loan is when a group of lenders or financial institutions provide a credit facility to a borrower.
Global integration
Beijing-based ICBC, the world's most profitable bank, loaned $790 million to borrowers ranging from Australian supermarket chain Woolworths Ltd to Dutch commodities trader Trafigura Beheer BV and the Dubai Civil Aviation Authority, the data showed.
"China's economy is more and more integrated into the global economy, and through this crisis we saw demand from Europe and the US decline but demand from the emerging markets, particularly Asia and Africa, rise," ICBC Chairman Jiang Jianqing said.
Royal Bank of Scotland, which is selling or shutting businesses in two-thirds of the 54 countries in which it operates after posting the biggest loss in British corporate history last year, has made $2.1 billion syndicated loans in Asia-Pacific excluding Japan this year, down from $7.8 billion in the same period of 2008, Bloomberg data show.
Citigroup has made $11.6 billion US leveraged loans this year, down from about $25 billion in 2008 and $103 billion in 2007, Bloomberg data show.
'Long haul'
Australia's APA Group, whose roots stretch back to 1841 when gas lamps first lit the streets of Sydney and which now transports more than half of Australia's natural gas, never borrowed from a lender in Asia until Bank of China offered cash, according to Chief Financial Officer Peter Fredricson.
"They've got the liquidity, but they also want to show they're here for the long haul," Fredricson said after Bank of China contributed to the company's A$1.03 billion ($953 million) of loans in September.
"What we all need to understand is that China is a huge and growing economy on the world scene, so we should expect to see them more," Fredricson said.
Deposits at ICBC, Bank of China, China Construction Bank and Bank of Communications - China's four largest publicly traded banks -- grew by 4.3 trillion yuan to 26.2 trillion yuan in the first half of 2009, up from 18 trillion yuan in June 2007, according to Bloomberg data.
Capital base
"Our funding sources and capital base at this moment are even stronger than some of the foreign banks," said Andy Lee, head of credit for Beijing-based Agricultural Bank of China's Hong Kong branch.
"China's economy is growing, and many foreign companies would like some mainland foothold. We can provide the introductions and connections," Lee said.
China's economy grew 8.9 percent in the third quarter from a year earlier, the fastest pace in a year, as stimulus spending and record lending growth helped the nation lead the world out of recession.
The median projection of economists surveyed by Bloomberg News is for GDP to increase more than 10 percent in the final three months of 2009.
Chinese households' savings as a percentage of income rose to 37.5 percent last year, up from 27.5 percent in 2000, according to Stephen Roach, chairman of Morgan Stanley Asia Ltd in Hong Kong. The rate of US household savings was 3.3 percent in September, the US Commerce Department reported.
"Borrowers see these huge hoards of cash available at relatively decent prices and it makes sense to knock on their doors," said Amit Khattar, Singapore-based head of non-Japan Asia loan syndication at Credit Suisse Group AG, Switzerland's largest bank.
"But that doesn't mean the doors are open for everybody, at least not yet," Khattar said.
Standard Bank Group Ltd worked on four transactions this year involving Chinese banks and foreign borrowers that haven't come to fruition, said Les Collett, head of Asia-Pacific loan syndication in Hong Kong for Africa's largest lender.
"While Chinese lending has really taken off in the last 18 months, they prefer not to go in too long too early," he said.
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